Financial Reports Show Texas Insurers Profitable in 2007

March 14, 2008

In 2007, Texas insurers recorded one of their most profitable years of the decade, prompting some consumer advocates to call for tougher state regulation on homeowner rates.

Financial reports released by the Texas Department of Insurance indicated most companies had another year of solid earnings, marking their fifth straight year of meeting or beating a standard benchmark for reasonable profits.

Insurers paid out 36.5 percent of premiums to cover property losses – known as loss ratio – well below the 58 percent figure often cited by experts as a good measure of profitability.

Industry representatives said years of high profits offset the poor years in the early part of the decade and said insurers need to build up reserves to cover inevitable losses when hurricanes or hailstorms hit Texas.

“A good year for Texas insurers means homeowners weren’t clobbered by tornadoes, hurricanes and hailstorms,” said Mark Hanna of the Insurance Council of Texas. “It means insurers will be in good financial shape when Texas, which has some of the most violent weather in the world, faces this year’s spring and summer thunderstorm season.”

But consumer groups called the low loss-ratio numbers “outrageous” and proof that companies are overcharging Texans to insure their homes.

“Homeowners deserve better treatment than this,” said Alex Winslow of Texas Watch, a consumer group active in insurance issues. “Insurance companies are continuing to post exorbitant profits in large part because the Texas Department of Insurance refuses to get tough. Policyholders are sick and tired of lip service. They want action.”

Jerry Johns, president of the Southwestern Insurance Information Service, said the 36.5 percent loss figure reported by the insurance department is misleading because it does not take into account expenses such as agent commissions, overhead, administrative costs and other expenses.

In 2006, the industry said those expenses took another 30 percent of the premiums they collected. If that figure holds up for last year, it would result in a combined expense and loss ratio of around 66.5 percent.

Even with the better claims experience in 2007, Johns noted, Texas still ranked third among the states in weather-related losses at $677 million. Only California and Minnesota had greater total losses.

Public Insurance Council Rod Bordelon, who represents consumers in rate cases, said his office is considering asking state Insurance Commissioner Mike Geeslin to order rate reductions.

State Farm, the largest insurer in Texas, has been fighting the state in court since fall 2003 over an order to decrease its homeowner premiums by an average of 12 percent. Some experts have estimated that the company owes its customers more than $600 million in overcharges since that time but the company insists its rates have been fair and reasonable.

In 2007, State Farm was slightly above the average loss ratio in Texas, paying 39.2 percent of its premiums to cover losses. The two other largest companies in the state, Allstate and Farmers, were near the state average.

Texas uses a “file-and-use” rate system for auto and home insurance that allows companies to immediately increase premiums without state approval once they notify the Texas Department of Insurance. The department can challenge any increase it deems excessive.

State Farm and Allstate have been placed under state orders that require them to get approval from the state before they can raise rates. Allstate, like State Farm, has been at odds with state regulators over what it charges for homeowners coverage.

Information from The Dallas Morning News:

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